Gold is Nearing a Type of Endgame

The running theme in gold markets last year was for price to keep finding
ways to move lower than most traders thought it could. We and our subscribers
were able to trade that market successfully on the short side, because we relied
on these five elements of analysis:

1) We always had at least two scenarios in mind which would produce different
outcomes (e.g., bullish vs. bearish, or bearish vs. less bearish, etc.)

2) We clearly delineated the boundaries for price to obey, to be in keeping
with each scenario.

3) We used trader sentiment to favor scenarios that were the most contrarian
(while not becoming fixated on those scenarios).

4) We paid attention to some technical analysis methods that are seldom used,
but that have proved to be predictive over time - methods that include cycle
analysis, momentum studies, Gann techniques, Elliott Wave, and more.

5) We always looked for trade entries that favored our dominant scenario,
at the times when price was near the edge of what that scenario would tolerate.

Elsewhere, we have compiled a retrospective of
how our analysis tracked gold throughout 2013. We think it can be useful reading
for the trader, because it shows how to see entry opportunities and, in particular,
how to see them on the kinds of charts we publish.

Now, with January's price low, the technical picture for gold includes some
mixed signals. This period can be thought of as a crossroads, and we should
find out soon which of the technical signals will set the tone for the first
quarter of 2014. (Our primary scenario still favors lower lows over the next
few months.)

If gold bounces from here...

Supporting the bullish case, gold is making what looks like a double bottom,
which has arrived with positive momentum divergence on the monthly and weekly
timeframes. Also, the market's empirical cycle on the weekly timeframe has
reached the point where it should begin favoring upward moves, and that upward
tendency will last throughout 2014. In addition, sentiment among large speculators
has reached a low that's in the same vicinity as the one that preceded gold's
summer 2013 price bounce.

This line of thought suggests two possibilities - a medium-term bullish outcome,
or an outcome that is short-term bullish but medium-term bearish. We describe
those scenarios in this section, although our preferred option is presented
in the next section.

The medium-term bullish scenario would have last summer's low be the end of
the downward leg that began in 2011. Note, even this option is bearish into
approximately 2016-2017, but it allows for a substantial (c)-wave rally for
at least several months. Such a rally would probably take price above $1,400
and possibly to the $1,591 area. This outcome would cast this year's lows as
a double bottom.

The short-term bullish, medium-term bearish scenario pays attention to some
of the same technical signals, while painting an impending rally as just the
final stage of a 4th-wave corrective pause before price continues downward.
This scenario allows for a bounce during the first few months of 2014, but
the upper channel boundary shown on the chart below would act as resistance.
That could happen in the vicinity of $1,350, depending on how long a bounce
takes to intersect the channel line.

Both of the scenarios described above would allow long-term Elliott Wave analysts
to view this year's low as the completion of a large 4th wave that began in
2011 - a view that will be attractive to some, but that we believe is incorrect.
A bounce from the present area would give hope to long-term gold bulls, only
to set up an arena in which those hopes would eventually be dashed.

If gold does not bounce from here...

The bounce scenarios described above are attractive for a number of reasons,
but our primary scenario continues to be that gold will see lower lows during
the first quarter of 2014. In part, this is because it is the most contrarian
of all three scenarios. A move downward in coming weeks would disappoint those
looking for a double bottom, and it would surprise the first wave of contrarian
traders who see the present the low in speculator sentiment as an omen of an
impending bounce.

In addition, we believe one of the marks of a lasting low will be when price
tests below the $1,103 level of the 2008 high - a level that invalidates the
decline from 2014 as a large fourth wave.

However, in our approach, even the most attractive scenario must be grounded
in a valid Elliott framework. The case for a low into early 2014 treats the
whole move down from 2011 as simply the first part of a much longer A-B-C corrective
move that could last through much of the decade.

A detailed examination of the weekly chart and price targets in keeping with
our preferred scenario can be found in an extended version of this article
on our website.

Note, if price rises much beyond 1,267 or beyond the upper boundary of the
big channel, then we would assign this scenario a lower probability and would
start to trade along the lines suggested by one of the charts shown earlier
in this article.

Staying on the right side of the market and making profits consistently is
challenging, but it's what we help our members do every day on time frames
ranging from intraday to swing trading. Beyond the public blog, members have
access to extensive sets of charts and technical analysis for major traded
commodities, as well as a live intraday trading forum where we chat with members
and identify trading opportunities as they arise.

Our work is grounded in several technical methods. We make use of Elliott
Wave, Gann techniques, Fibonacci relationships in price and time, cycles,
and other approaches. Most members have several years or decades of trading
experience, but we also provide an environment where the dedicated newer trader
can learn much that is not available in published books or found in courses.